By Ian McConnell

Business Editor

ANNUAL UK consumer prices index inflation surged to a 30-year high of 6.2 per cent in February – once again coming in worse than expected in official figures published yesterday – and is expected to surge even further through spring.

The inflation rate is up from 5.5% in January, and exceeded the median forecast of 5.9% in a poll of economists conducted by Reuters. It is the highest since March 1992, when annual CPI inflation was at 7.1%.

The Bank of England last week predicted annual CPI inflation will rise to around 8% in the second quarter, declaring it could “perhaps” move “even higher later this year”.

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Household energy bills are set to surge from April 1 for customers on variable tariffs on the back of a 54% hike by regulator Ofgem in the price cap for a typical dual fuel customer.

The EY ITEM Club think-tank said yesterday: “Although inflation continued to accelerate in February, the latest pick-up is likely to pale in comparison to the pace of price rises over the next couple of months.”

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Publishing the latest inflation figures, the Office for National Statistics noted average petrol prices stood at 147.6 pence per litre in February, compared with 120.2p a litre a year earlier.

It observed: “The February 2022 price is the highest recorded.”

Petrol prices have surged significantly higher since last month, following Russia’s invasion of Ukraine.

The latest inflation data show prices for food and non-alcoholic beverages in February were up by 5.1% on a year earlier. Prices in the clothing and footwear category were last month up by nearly 9% on February 2021. And household goods prices in February were nearly 10% higher than a year earlier.

The year-on-year rises in household electricity and gas bills accelerated dramatically last October, to 18.8% and 28.1% respectively. The ONS noted yesterday these annual inflation rates had increased slightly to 19.2% and 28.3% by February.

James Lynch, fixed income manager at Aegon Asset Management, said of the February inflation data: “This rise in prices is more of a reflection of the Covid reopening story. It was a broad-based increase in prices of everything from households goods [and] food to clothing. This is about supply-chain issues and increasing demand, along with what was actually a modest rise in energy prices. By mid-February wholesale Brent oil was $90 a barrel, up from around an average of $80 between October and January.”

Mr Lynch warned there was worse to come on the inflation front.

He said yesterday: “Oil is now $115 a barrel and this latest move has not yet been reflected in official inflation measures, and along with the Ofgem rise in household energy bills it means unfortunately we are now only at the start of a very painful period for price rises in the UK which may well last all year and into 2023.”

Mr Lynch highlighted the potential for further rises in UK base rates, which have been increased from a record low of 0.1% to 0.75% over recent months, with the latest increase last week.

He said: “In terms of policy measures by the Bank of England, the latest communication from [the Bank] is it is of course concerned what this ‘cost-of-living crisis’ does to consumer demand, and in turn economic growth. On the other hand, it will be worried that this type of inflation is not going to be ignored by households and it could be a perfect storm for high inflation expectations to become embedded given the UK’s current robust labour market backdrop.”

Mr Lynch added: “If the labour market continues to be tight and we see wages rise then we expect the Bank of England to keep to its hiking path of 0.25 [percentage points] per meeting given the inflationary backdrop.”

Martin Beck, chief economic adviser to the EY ITEM Club, said: “Inflation will rise significantly over the next two months. Petrol prices have increased in recent weeks in reaction to the rise in oil prices. Last week, pump prices were almost 15% above the February average. Inflation will then rise up again in April, as the 54% rise in the energy price cap takes effect, and the VAT (value-added tax) rate for the hospitality sector returns to 20%.”

Mr Beck said that “what happens further out will be heavily influenced by the geopolitical situation and its impact on commodity prices”.

He added: “Though there has been more encouraging news on wholesale gas prices in recent days, a further increase in the energy price cap in October still looks likely, while petrol prices are likely to be slow to fall back. As such, the EY ITEM Club expects CPI inflation to average close to 7% this year, generating the biggest squeeze on household finances for more than a decade.”

The Office for Budget Responsibility yesterday forecast annual CPI inflation would average 7.4% this year.